Boosting India’s Economy through Innovation and Reform

Source: The post Boosting India’s Economy through Innovation and Reform has been created, based on the article “Three wishes for 2025” published in “Business Standard” on 3rd January 2025

UPSC Syllabus Topic: GS Paper3- Growth and Development

Context: The article discusses the need for India to invest in innovation, scale up manufacturing, and focus on productivity through structural changes to achieve long-term economic growth. It also suggests reforming education, tourism, and improving political discourse to support these goals. Boosting India’s Economy through Innovation and Reform

For detailed information on Challenges and Opportunities in Indian Economy read this article here

What Is the Need for Indian Industry?

1. Investment in Innovation: Indian industry currently invests only 0.3% of GDP in R&D, significantly lower than the global average of 1.5%.
2. Comparison with Global Standards: Indian firms spend $7 billion annually on industrial R&D, compared to $625 billion in the US and $335 billion in China.
3. Profit Reinvestment: The top 10 successful Indian non-financial firms invest merely 2% of their profits in R&D, while firms in the US, China, Japan, and Germany reinvest between 29% and 55%.

How Can India Enhance Its Economic Policy?

1. To achieve a developed economy status by 2047, India needs to grow its GDP per capita from the current $2,700 to over $14,000. This requires an annual growth rate increase to 8.5%.
2. Key strategies include boosting female labor force participation and transitioning workers from agriculture to higher productivity sectors in industry and services.

What Changes Are Suggested for Structural and Political Reform?

1. Reduction of Government Control: Scrapping industrial licensing allows industries to invest without government restrictions. This change is modeled on the post-1991 economic reforms that led to significant growth.
2. Tariff Reduction: Lowering tariffs has historically forced Indian companies to compete with global firms, enhancing their competitiveness.
3. Independent Institutions: Allowing institutions to operate independently has improved regulatory frameworks, fostering a more robust business environment.
4. Tax Reforms: Reducing corporate and personal taxes since 1991 has enabled entrepreneurs to legally accumulate and reinvest wealth, contributing to economic growth.

What Reforms Are Needed in Education and Tourism?

1. Education:

• Increase funding to improve school quality.
• Allow more autonomy for higher education institutions in selecting their boards and faculty.

1. Tourism:

• Ease land use regulations to allow more hotels.
• Improve air connectivity to attract more tourists. Currently, Dubai attracts twice as many tourists as all of India.
• Simplify visa processes to enhance foreign tourist entries, following examples from countries like Thailand and Malaysia.

Question for practice:

Examine how the proposed structural and political reforms could enhance India’s global competitiveness in the industrial sector.